Another French government falls – snap elections loom

The abrupt fall of the French government on 6th October will increase pressure on President Emmanuel Macron to dissolve the National Assembly and hold snap elections to try and break the deadlock. We think this is now the most likely scenario.

What you will learn:

• We now expect even more fiscal slippage next year, with a widening deficit maintaining upward pressure on government bond spreads. However, we aren’t incorporating an additional drag on GDP from the uncertainty into our already below-consensus baseline forecast.
  
• The 2025 budget is now very likely to be at least temporarily rolled over into 2026, as there won’t be enough time to pass a budget before the end of the year. We expect next year’s deficit to reach 5.7% of GDP, slightly higher than this year’s 5.4%..
  
• Macron could appoint yet another prime minister, possibly from the centre-left, but his chances of passing a budget would be slimmer than ever. Macron resigning is a very unlikely third possibility.